No. 90-150
IN THE SUPREME COURT OF THE STATE OF MONTANA
1991
PEGGY A. YOUNG, Individually, and as
PERSONAL REPRESENTATIVE OF THE ESTATES
OF CRAIG CARROL YOUNG, Deceased, and
CHARLES E. YOUNG, Deceased,
Plaintiffs and Appellants,
-v-
MILTON DATSOPOULOS, RICHARD A. REEP,
WILLIAM K. VANCANAGAN and DATSOPOULOS,
MacDONALD & LIND,
Defendants and Respondents.
APPEAL FROM: District Court of the Fourth Judicial District,
In and for the County of Missoula,
The Honorable C.B. McNeil, Judge presiding.
COUNSEL OF RECORD:
For Appellant:
Richard F. Gallagher (argued); Margaret M. Joyce
Johnson; Church, Harris, Johnson & Williams; Great
Falls, Montana
For Respondent:
Dexter L. Delaney (argued); Mulroney, Delaney &
Scott, Missoula, Montana
Martin "Skipw Burke; Faegre & Benson; Minneapolis,
Minnesota
Heard: February 20, 1991
Decided: August 21, 1991
Filed:
rl
Clerk
.
Justice R. C. McDonough delivered the Opinion of the Court.
This is an appeal from the District Court of the Fourth
~udicialDistrict, Missoula County. plaintiff appeals a partial
summary judgment for defendants, which bars a large portion of her
legal malpractice claims. We reverse and remand.
The following issue is dispositive of this appeal:
Do genuine issues of material fact exist as to when the
statute of limitations began to run, making partial summary
judgment inappropriate?
In December 1982, ~ r a i gYoung, then thirty-one years of age,
left his home in Missoula, Montana, on a business trip to Texas.
Slightly over one month later, on January 12, 1983, his stabbed and
gunshot body was found alongside a Texas roadway.
Between Craig's departure for Texas and the discovery that he
had been murdered, his family became concerned about his uncharac-
teristic failure to communicate with them. His parents and his
younger brother and sister went through his personal and business
papers in an effort to locate clues as to his whereabouts. They
knew Craig had had a business association with Jack Dickie, who
lived in Texas. The exact nature of that business was not known
to the family. They did know that Craig was involved in the
development of mining claims, that Craig and Dickie may have been
operating in "gray areas1'of the law, and that Craig never appeared
to have much money.
During the family's search through Craig's papers, they found
newspaper clippings indicating that Dickie had been involved in
2
' ,
murders committed to collect the decedentst life insurance
policies. The family learned that a life insurance policy which
Craig had obtained the previous summer was in the amount of $3
million. They also found evidence of promissory notes worth $2.5
million from Craig to Vanguard World Holdings (Vanguard), a
Panamanian corporation.
The family contacted the defendant law firm, knowing that the
firm had done legal work for Craig. The law firm gave the family
the name of a private investigator in Texas and also suggested that
they contact the Texas Rangers. After Craig's body was found, the
Youngs retained the defendant law firm to probate his estate.
In his will, Craig had named his father, Charles E. Young, and
Jack Dickie as co-personal representatives of his estate. The
Young family objected to any involvement of Dickie, who they
strongly suspected was responsible for Craig's death. According
to Peggy Young, defendants Reep and Vancanagan, attorneys with the
defendant law firm, advised her and Charles E. Young that there
was no basis for opposing Dickiets appointment as co-personal
representative unless a criminal investigation connected him to
Craig's death. Though Dickie remained as a co-personal representa-
tive, he agreed to forego fees for acting as such and he did not
participate actively in the probate of the estate. The estate did
pay Dickietsattorney fees incurred duringthe dispute over whether
he should remain as co-personal representative.
United Pacific Insurance Company, which had issued the $3
million insurance policy on Craig's life, hired a private inves-
. I
* I .
tigator who became convinced that Dickie had murdered Craig and
that Dickie owned or controlled Vanguard. However, United Pacific
eventually paid the face amount of the $3 million policy to the
estate, and has never sought repayment. That life insurance policy
was the only substantial asset of the estate.
The notes Craig had signed in favor of the Vanguard corpora-
tion had been issued in exchange for corporate stock and forty-
nine Montana mining claims Craig had staked several years earlier.
As part of a paper shuffle, Dickie and Craig had transferred these
and other assets among several shell corporations, inflating their
stated values with each transfer, until Craig's assets reached a
paper value of over $10 million. This had been done to support the
application for the insurance on Craig's life, which was a
prerequisite to a $3 million loan Dickey ostensibly was arranging
from a British labor union. Whether the Youngs understood all of
this is disputed.
Peggy Young maintains that the members of the defendant law
firm told the Youngs that absent evidence that Craig's signature
had been forged, there was no basis for refusing to pay the $2.5
million promissory notes to Vanguard. The law firm contends that
it advised the Youngs that a possible defense to the notes would
be failure of consideration, butthat because such a defense would
challenge Craig's credibility in stating his net worth to the life
insurance company to obtain the policy, the defense was not raised.
Peggy Young maintains that no such advice was given.
On January 30, 1984, Charles E. Young, as co-personal
representative of Craig's estate, agreed to settle the Vanguard
claim for $2.14 million. The amount of the settlement was, in
fact, suggested by Peggy Young. The remaining $1 million in
insurance money went to the Youngs, as Craig's heirs. The estate
inventory eventually listed Craig's mining claims as having no
actual value at all. On the advice of defendants, the estate also
abandoned certain legal claims defendants had been litigating on
Craig's behalf against defendants Shuman, Munro, and Jenkins.
Dickie was subsequently convicted in federal court on racketeering
charges, which included matters relating to Craig's murder.
In October 1985, the Internal Revenue Service, in auditing
Craig's estate's federal estate tax return, disallowed the
deduction of the Vanguard claim from the estate assets due to
failure of "adequate and full consideration, since it was merely
a paper transaction." A $1.2 million deficiency was assessed
against the estate. The Youngs contacted separate counsel for
assistance with the IRS matter.
On September 3, 1987, the parties to this action executed an
agreement to toll the running of the statute of limitations.
Therefore, that is the effective filing date of the complaint, in
which Peggy Young and Charles E. Young, as executor for the estate
of Craig Young, were originally named as plaintiffs. In May of
1988, Charles E. Young died. His death further complicates the
question of who knew what, and when. Peggy Young succeeded him as
I
J .
personal representative of Craig's estate and as the plaintiff in
this case.
The complaint alleges breach of contract, negligence, bad
faith, negligent misrepresentation, and contractual bad faith.
Peggy Young claims that the defendants committed legal malpractice
by misadvising the Youngs or by failing to advise them properly
concerning removal of Jack Dickie as a co-personal representative,
the possible defense to the Vanguard claim of lack of considera-
tion, and abandonment of the claims against Shuman, Munro, and
Jenkins. She also asks for indemnity for the Youngsl attorney
fees, costs, and expenses in defending against the IRS claim.
Defendants moved for summary judgment based on a statute of
limitations defense; waiver, ratification and estoppel; and unclean
hands, unjust enrichment, and in pari delicto. The District Court
initially denied the motion. However, on the defendants1 request
for amendment of the order denying summary judgment, the court
awarded defendants partial summary judgment on a theory that the
statue of limitations for attorney malpractice had expired before
the Youngs filed their complaint. The partial summary judgment
dismissed all claims relating to the appointment and service of
Jack Dickie as co-personal representative of Craig Younglsestate,
the settlement of the Vanguard claim against the estate, and the
release of the legal claims Craig Young held against Shuman, Munro,
and Jenkins. One claim survived the summary judgment: whether
defendants were professionally negligent in failing to obtain an
advance letter ruling on the deductibility of the Vanguard claim
on the federal estate tax return.
Do genuine issues of material fact exist as to when the
statute of limitations began to run, making partial summary
judgment inappropriate?
Summary judgment is proper only if no genuine issues of
material fact exist and the moving party is entitled to judgment
as a matter of law. Rule 56(c), M.R.Civ.P. Our standard of
review is the same as that employed by the district court.
McCracken v. City of Chinook (1990), 242 Mont. 21, 24, 788 P.2d
892, 894. All reasonable inferences that may be drawn from the
offered proof are to be drawn in favor of the party opposing the
motion for summary judgment. Cereck v. Albertsonts, Inc. (1981),
195 Mont. 409, 411, 637 P.2d 509, 511.
Section 27-2-206, MCA, provides, in relevent part:
An action against an attorney licensed to practice law
in Montana ... based upon the person's alleged profes-
sional negligent act or for error or omission in the
personls practice must be commenced within 3 years after
the plaintiff discovers or through the use of reasonable
diligence should have discovered the act, error, or
omission, whichever occurs last, but in no case may the
action be commenced after 10 years from the date of the
act, error, or omission.
While this statute incorporates the "discovery rule," this Court
has held that the statute of limitations begins to run when the
plaintiff has "knowledge of the facts essential to the cause of
action, not knowledge of the legal theories upon which an action
may be brought." Burgett v. Flaherty (1983), 204 Mont. 169, 173,
663 P.2d 332, 334.
Defendants rely heavily upon Bursett and several other cases
previously decided under 5 27-2-206, MCA. In Bursett, the claim
was based on the conflict between the attorney's action in stipula-
ting to a dissolution of marriage by default and his client's
wishes not to have a dissolution so entered. In Schweitzer v.
Estate of Halko (1988), 231 Mont. 283, 751 P.2d 1064, the claim was
based on the conflict between the client's new will and his old
will, both of which the attorney had drafted, and both of which the
client had signed. In Boles v. Simonton (1990), 242 Mont. 394, 791
P.2d 755, the malpractice claimed was omission of a savings clause
in a default clause in a contract for deed. The contract was
admittedly read before it was signed and this Court stated that
"[tlhe default clause, as here drafted, is not complex or beyond
the understanding of a lay person.'' Boles, 791 P.2d at 758. The
Court held that the statute of limitations began to run at the
signing of the contract.
Here, in contrast to the above cases, the claim of legal
malpractice is not based upon the attorney's acts contrary to the
clients1 wishes. Rather, the Youngs took legal positions on the
basis of the defendants' expertise in legal matters. While one may
assume, where an attorney has acted contrary to a client's wishes
in a matter which is within the understanding of a lay person, that
the client would be cognizant of the facts which form the basis for
a claim of malpractice, the same cannot be said here.
In Schneider v. Leaphart (1987), 228 Mont. 483, 743 P.2d 613,
this Court held that the statute of limitation for legal malprac-
tice began to run not when the attorney drafted the defective
agreement, of which the client was presumeably aware when he signed
it, but two years later when the client was advised by an accoun-
tant that the agreement was flawed. As this Court stated in Boles,
"the client became aware of the attorney's alleged negligence in
including a maintenance provision in a property settlement when an
accountant told him the provision was unnecessary; it was the
discovery of this fact that triggered the statute. . .. Boles,
791 P.2d at 758.
In McMillan v. Landoe, Brown, et al., P.C. (1988), 233 Mont.
483, 760 P.2d 758, this Court held that 1 27-2-206, MCA, commenced
to run on a claim for malpractice in failing to exercise due care
in prosecuting a sheriff's sale not from the date of the sheriff's
sale, but when the client was forced to defend against an action
based upon the sale. In Peschel v. Jones (1988), 232 Mont. 516,
760 P.2d 51, the statute began to run on a claim on a misdrafted
agreement not when the agreement was drafted, but when other
parties to the agreement took action which the client had believed
would be prohibited under the agreement and when the client learned
of claims against him which he had expected the agreement to
resolve. These cases do not conform to the defendants' interpreta-
tion of 1 27-2-206, MCA.
The Youngs maintain that they were not aware that different
legal positions could have been taken in the matters for which they
claim attorney malpractice. They claim that, until they contacted
separate counsel after receiving the IRS assessment in October
1985, they were not aware that defendants could have declined to
represent Jack Dickie as a co-personal representatives of the
estate, forcing Dickie to obtain separate counsel (who would
normally receive part of the attorney fees for probating the
estate). Further, they claim that until they contacted their
present counsel they were not aware of the existance of a possible
defense of lack of consideration for the Vanguard claim. They
maintain that defendants told them that because Craig's signature
on the Vanguard notes checked out as genuine, the notes would have
to be paid out of Craig's estate. Finally, they claim that they
were not informed that there was possibly remaining value in
Craig's claims against Shuman, Munro, and Jenkins.
Because Dickie did not take an active role as co-personal
representative of Craig's estate and did not accept any fee for so
acting, it initially appears that the actual damages for that
aspect are limited to the amount of the attorney fees Craig's
estate agreed to pay for Dickie's temporary separate counsel. But
other damages are also claimed under the various counts of the
complaint. The claim is that defendants failed to advise the
Youngs that co-personal representatives could be represented by
separate counsel or that Dickie's appointment could be challenged
as not in the best interest of the estate.
We have real doubts there was any value in Craig's claims
against Shuman, Munro, and Jenkins. But, again, the Youngs are
claiming a failure to advise them properly on a matter not within
the range of knowledge of the average lay person. That is a
factual issue.
The substantive claim in this appeal appears to be the failure
to pursue a defense of failure of consideration for the Vanguard
claim. The Youngs were admittedly aware at the time Craig's body
was found or shortly thereafter that their son may have operated
in "gray areas" of the law; that he was not a wealthy man but that
there was a $3 million policy of insurance on his life; that Jack
Dickie was a prime suspect in Craig's murder; that Craig had
executed $2.5 million in promissory notes payable to Vanguard; that
Craig was afraid for his life. Mark Young, Craig's brother, knew
that Dickie was associated with Vanguard and that Craig and Dickie
had been engaging in stock shuffling on mining claims, for the
purpose of increasing Craig's financial status. The Youngs also
knew that Craig believed he would receive a large sum of money on
his final fatal trip to Texas. Peggy Young admits that she was the
one who suggested the amount of the eventual settlement with
Vanguard and that she knew of the decisions made in probating
Craig's estate.
We hold that material issues of fact are present as to when,
as a result of all the other facts of which they were aware, the
Youngs should have known or through the use of reasonable diligence
should have known that defendants were omitting or failing to take
certain actions, which omissions Peggy Young now claims constitute
legal malpractice. The existence of the malpractice which is
claimed may be in effect inherently unknowable to the lay client.
When it was or should have been knowable is exactly the type of
factual question appropriate for resolution by a trier of fact.
Conflicts in the deposition testimony illuminate another
aspect of the issues of material fact. In his deposition, defen-
dant Reep states that before the estate made its settlement with
Vanguard he advised the Youngs of the possible defense of lack of
consideration. Peggy Young, in her deposition, states that no such
advice was given. If the trier of fact believes the defendants,
that claim is precluded, because prior to the January 1984 settle-
ment the Youngs had actual knowledge that such a defense was
available and that their attorneys were not going to raise it.
We hold that material issues of fact are present in this case
as to the claims upon which the ~istrictCourt granted summary
judgment. We reverse the summary judgment and remand for further
proceedings consistent with this Opinion. Because of our holding
on that issue, it is not necessary that we consider the issue of
whether defendants are estopped to assert the defense of the
statute of limitations against their former clients.
Justice
We Concur:
Chief Justice
Justices
sitting f o r Justice K a r l a M
, Gray
sitting f o r Justice ~ e &N.~ Trieweiler
Justice Fred J. Weber dissents as follows:
The majority has stated the following issue as dispositive:
Do genuine issues of material fact exist as to when the statute of
limitations began to run, making partial summary judgment
inappropriate? I agree with that statement of the issue. In
considering that issue I conclude there are no issues of material
fact in this case, only issues of legal theory.
Section 27-2-206, MCA, provides in substance that an action
against an attorney must be commenced within three years after the
plaintiff discovers or should have discovered the act, error or
omission. The majority opinion cites a number of Montana decisions
and reaches a conclusion that the cases do not conform to the
defendants' interpretation of 5 27-2-206, MCA. I disagree with
that conclusion. The key legal statement of the pertinent Montana
decisions is contained in Burgett v. Flaherty (1983), 204 Mont.
169, 173, 663 P.2d 332, 334. The majority opinion refers to
Bursett but fails to conform to its holding. I think it
appropriate to cite more fully to Bursett in which this Court
stated as follows:
As a matter of law, what is critical in determining
when a legal malpractice action accrues is knowledge of
the facts essential to the cause of action, not knowledge
of the legal theories upon which an action may be
brought.
California's statute of limitations for legal
malpractice is not identical to Section 27-2-206, MCA,
but for the purpose of the discovery argument advanced
by Burgett, its interpretation by the ~aliforniaCourt
of Appeals is persuasive.
"The question here is whether appellant's
alleged ignorance of her supposed rights
against her former attorney is sufficient to
toll the statute of limitations.
The statute of limitations is not tolled by
belated discovery of lesal theories, as
distinguished from belated discovery of facts.
In legal and medical malpractice cases, the
courts are often confronted with such claims
that the statute of limitations has been
tolled. However, the Supreme Court repeatedly
has explained that it is the knowledge of
facts rather than discovery of legal theory,
that is the test. The test is whether the
plaintiff has information of circumstances
sufficient to put a reasonable person on
inquiry, or has the opportunity to obtain
knowledge from sources open to his or her
investigation. (Sanchez v. South Hoover
Hospital, 18 Cal.3d 93, 101, 132 Cal.Rptr.
657, 553 P.2d 1129.) . . . l1 (Emphasis in
original.) (Citations omitted.)
I emphasize that no Montana case has modified the Burqett holding
as above stated. As a result I conclude that in Montana it is not
knowledge of legal theories which is significant. The only test
is whether the plaintiff had knowledge of facts essential to the
cause of action. I will now review the plaintiffs1 knowledge of
facts essential to the plaintiffs1 cause of action.
To shorten this dissent, I discuss only the primary claim on
the part of the plaintiffs, that being the claimed failure to
pursue a defense of failure of consideration for the Vanguard
creditor's claim. I think it important to emphasize the extent of
the factual knowledge on the part of the plaintiffs as set forth
by the District Court in its careful review of the facts and of the
law. Following are pertinent- portions of the opinion of the
District Court which has been reversed by the majority:
Plaintiffs assert that Defendants advised that the
Vanguard promissory notes would have to be paid because
they had been signed by Craig Young, that there was no
viable defense to the claim and that the law required
that the claim be paid. Plaintiffs further claim that
Defendants did not -tellthem of a defense of insufficient
or no consideration for the notes 3s a basis for denial
of the creditor's claim. ...
. .. A careful review of the facts found herein,
and Plaintiffs1 alternative motion for partial summary
judgment for Defendants, now cause the Court to hold that
all of the facts which constitute the acts, errors or
omissions which are the basis of the alleged professional
negligence relating to the settlement and payment of the
Vanguard claim were discovered, or through the use of
reasonable diligence should have been discovered by
January, 1984.
In addition, no other facts relatins to the
settlement of the Vanquard creditor's claim have been
discovered since January, 1984. All of the advice,
misadvice or omission to advise Plaintiffs on that
subject was concluded by Defendants by January 30, 1984.
Again Plaintiffs argue that the statute of
limitations on this issue did not commence until their
consultation with present counsel in October of 1985 when
they lldiscoveredll alleged malpractice of Defendants.
the
Howevertthat is merely the date when the legal theory of
Plaintiffs1 suit was discovered and, as in the first
claim set forth above, no additional facts have been, or
will be, discovered since September 14, 1984 relating to
the Vanguard creditor's claim settlement, and therefore
Plaintiffs1 complaint relating to such issue is likewise
barred by the statute of limitations. (Emphasis added.)
The District Court concluded that there were no genuine issues
of material fact, and therefore granted partial summary judgment
to the defendants on the theory that each claim was barred by the
statute of limitations, 5 27-2-206, MCA.
The majority points to the contention by the plaintiffs that
they were not aware of the different legal positions which could
have been taken until after receiving the IRS assessment notice in
October, 1985, and thereafter talking to their present counsel.
The majority then concludes that material issues of fact are
present as to when the Youngs should have known that defendants
were failing to take certain actions which the plaintiffs now claim
constitute legal malpractice. I am unable to find any facts in the
majority opinion which fit within that definition. The critical
question is when the Youngs obtained knowledge of the essential
facts, not when they obtained knowledge of their legal theories.
As quoted in Burcfett:
In legal and medical malpractice cases, the courts are
often confronted with such claims that the statute of
limitations has been tolled. However, the Supreme Court
repeatedly has explained that it is knowledge of facts
rather than discovery of legal theory, that is the test.
Burqett, 663 P.2d at 332.
Plaintiffsq primary contention is that until they talked to
another firm of attorneys, they did not know of the failure to
advise them of the legal defense of lack of consideration. The
plaintiffsl contention has been rejected under Buraett and
succeeding Montana cases. As pointed out by the District Court,
all of the facts which were known at the time of the 1990 order
were known to the plaintiffs in 1984. There are no additional
facts which subsequently became known to the plaintiffs. I
conclude that the majority has disregarded Burgett and subsequent
Montana cases interpreting 5 27-2-206, MCA.
I would affirm the determination by the District Court that
the claims were barred by the statute of limitations.
Chief Justice J.A. Turnage joins in the foregoing dissent of
Justice Fred J. Weber.
17 Chief Justi